Why enterprises will need a chief AI officer

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Enterprises are prioritizing artificial intelligence projects, but shortchanging the collaboration and orchestration needed across all business functions including HR, IT, finance, operations, and other areas. What's needed: Chief AI Officers.

That take is the short version of a Constellation Research report "The Urgent Case for a Chief AI Officer," by Andy Thurai and Ray Wang. The argument is that boards are giving AI projects above all other projects--including cybersecurity. And just like the rise of the chief information security officer you'll need a C-level focused on AI.

The bet is that enterprises will embed AI into all aspects of the business by 2026. Without a leader, AI projects are likely to run amok.

According to Thurai and Wang, who interviewed two dozen current chief AI officers (CAIOs), AI projects are already rolling with proofs of concepts. What's lacking is a long-term strategy to become an AI-first enterprise. Toss in a bevy of AI features--and add-ons to match--from vendors and this landscape is going to get complicated in a hurry.

Thurai and Wang wrote in the report:

"The case for a CAIO is simple. AI is still immature; hasn’t been proven in most enterprise settings; and needs many surrounding acts such as security, privacy, governance, provenance, ethicality, and truthfulness before it can offer real value to enterprises. With great power comes great liability: Such is the case with AI. There is a lot of liability in using external tools as well as using decisions proposed by AI with full confidence in real-world applications. A single point of responsibility and accountability will ensure the right orchestration and collaboration across the organization. Furthermore, organizations need a champion for AI, just as they did for digital transformation."

While the CAIO will have to set a long-term strategy, know business and technology and balance risks with rewards, there will be a more immediate chore: Delivering returns on investments.

Generative AI, commoditization and ROI

With boards pushing for AI projects, there’ll come a point where these same executives ask for results. Enter the CAIO. In recent days, Salesforce, Microsoft, Oracle, ServiceNow, SAP and Workday have all announced generative AI features across their cloud application portfolios.

We've talked names. We've talked generative AI sprawl as domain specific LLMs proliferate. And we've also talked about sticker shock as add-ons add up.

Next up: Generative AI commoditization. Yes, your enterprise software vendors will raise prices in various ways as they monetize generative AI. That approach will work for a bit.

But at some point, say 2025, enterprise software buyers will look to cull the generative AI upsell herd. Technology vendors call this optimizing the cloud spend. This copilot culling will happen because generative AI features will be commoditized. At that point, CIOs and CFOs will acknowledge early productivity wins and then start questioning returns.

Did that ServiceNow Now Assist feature really drive returns? Or was that the generative AI in that other suite? How will you know if Joule or Einstein was responsible for that productivity boost? Maybe we should give credit to Anthropic's Claude via AWS or OpenAI's ChatGPT or some open source model.

Here's the theme to watch: CAIOs are going to have to instrument their employee generative AI usage of each bot, query and pieces of content created with LLMs to quantify productivity gains. And that chore could get complicated. But first companies will need to add the CAIO role.

Akamai's IaaS vision: Become your cloud alternative

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Akamai Technologies wants to be your infrastructure as a service alternative by offering compute at the edge of networks for low-latency workloads. Akamai, which acquired cloud services provider Linode in 2022, has just completed its third wave of new compute regions.

The company added locations in Latin America as well as Europe and now has cloud centers around the world. Akamai has core compute regions around the U.S., London, Frankfurt, Singapore, Sydney, Tokyo as well as Sao Paulo. Akamai's cloud infrastructure is designed to reach hard-to-access markets by connecting compute to the 4,100 edge points of presence in 131 countries.

Akamai is best known for its content delivery network, but also has a large security business. In its latest quarter, Akamai's cloud business hit an annual revenue run rate approaching $500 million. Security and content delivery each have an annual revenue run rate of about $1.6 billion or so.

Tom Leighton, CEO of Akamai, said on the company's second quarter earnings conference call that there's room for another cloud provider focused on edge applications and optimization. "A common theme that I heard when I met with executives from around the world in Q2 was their growing concern about being locked into contracts with cloud giants that are consuming large and rapidly increasing shares of their IT budgets," he said. "They want more choice in compute."

Why do these CXOs want more cloud choices? Data egress fees. Compute has to go where the data resides or enterprises get crushed with egress fees. For Akamai customers that use the company's security and content delivery services there are no egress fees if you get compute. Akamai offers a set of cloud services including compute, Kubernetes, storage, database (MySQL, PostgreSQL), networking and developer tools

Media companies are a likely target for Akamai's cloud infrastructure since their cloud providers (notably Amazon and Google) are also competitors. Given that backdrop I caught up with Akamai CTO Robert Blumofe to talk shop. Here's the recap and key points of our chat.

The vision. Blumofe said Akamai is progressing with the vision laid out in 2022. One part of the vision is to grow Akamai's cloud compute capacity and by the end of 2023, it will have 26 new locations. The second part of the vision was to create an enterprise level offering. "Linode focused on developers with its primary offering. It had the core technology, but there was a gap with what enterprise customers expected," explained Blumofe. "We are working to close those gaps."

Blumofe added that Akamai is adding compliance, ID management, virtual private cloud and other features for enterprises. "The third part of the vision is building out a distributed cloud infrastructure where you can run arbitrary compute functions in a large number of locations near the edge," said Blumofe. "It's the next generation of edge computing and a longer development process that's proceeding well. You'll hear announcements in 2024."

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Timing. Blumofe noted that Akamai has always been involved with edge computing in some form, but the timing is right for a distributed cloud architecture. "The time is right now," said Blumofe. "Applications are architected for micro services and have components in different places with a container model. The world is ready for edge computing to come into its own."

Use cases. Typically, edge use cases will be dominated by CPUs where GPUs will be training models at the core. "For edge inference the computation load is small and done nicely on CPUs," he said. Media companies will have multiple use cases since they need low latency interactions with customers for entertainment and games. "So many enterprises are seeing cloud costs spin out of control due to egress," said Blumofe, who added that B2C companies with distributed users will look to distributed cloud services. E-commerce and financial services will also find use cases.

Overall, the use cases for the distributed cloud will revolve around applications where computation needs to be near the data from users, devices and things. "Compute is location sensitive and developers and will be able to put computation where it should be," said Blumofe. "We're moving compute to data rather than data to compute."

Another flavor of IaaS. Blumofe said Akamai's cloud computing business isn't designed to compete with hyperscalers and isn't focusing on a niche either. It fits in the middle. "I'd classify us as another flavor of IaaS. With hyperscalers you get locked into a platform where there are costs, vulnerabilities and single points of failure," explained Blumofe. "As multicloud approaches evolve enterprises will reduce platform lock0in and focus on infrastructure. There's a lot you can do without being locked in. We focus on infrastructure that does simple things very well with containers, autoscaling and load balancing."

The evolution of multicloud. Blumofe said many companies are using multiple clouds due to acquisitions and independent divisions, but that doesn't classify as multicloud. "You are truly multicloud when you use multiple clouds for any given application," he said. "That's where people want to go--using multicloud to run any given application on any cloud."

What's driving sales? Blumofe said Akamai is adding locations because two big drivers for the business are data sovereignty requirements and egress charges. Customers are also looking for more options, a simple cost model and low latency. "The structure of the Internet has become more distributed. It happened with content delivery and then security. It'll happen to compute too," said Blumofe.

Walmart Chief Sustainability Officer: ESG is integrated into operations, business

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Kathleen McLaughlin, Walmart's Chief Sustainability Officer, said Walmart has integrated sustainability and ESG efforts into its business operations as well as its planning cycles.

Speaking at the Goldman Sachs Sustainability Forum, McLaughlin gave an overview of Walmart's integrated approach to environmental, social and governance (ESG) initiatives and how it is driving business results via supply chain savings and other initiatives. Constellation Research analyst Doug Henschen said:

"Walmart's leadership in sustainability, disclosure and, most particularly, bringing some 70% of its supply chain along on that journey is commendable. Its supply chain successes show that efforts by large public companies will have a ripple effect down through smaller suppliers, including private companies that may not be directly required to meet coming ESG regulations."

Here's a look at Walmart's approach to ESG by category.

The business value of ESG.  McLaughlin said Walmart's strategy touches multiple areas of the business and is integrated across functions. In other words, ESG isn't a side project and aligns with saving money and bringing affordable products across multiple channels. ESG drives economic value via its people by developing new skills and being more productive, supply chain, partners and customers.

McLaughlin added that the circular economy also drives returns. "How do we shift consumption toward a more circular approach, not only of packaging and things like that, but the materials themselves and products?" said McLaughlin. Walmart can also leverage its real estate for sustainable energy and other services, she added.

"I think one of the more exciting things for me in this whole arena the last few years has been a shift from maybe the past 15 years ago from a corporate social responsibility mind-set and a side project mentality to something that's been more, 'these things matter for business," said McLaughlin.

Walmart's ESG initiatives are integrated with business initiatives and capital and operating expense planning. "It is part of our core operations," she said.

• Constellation Research 2023 ESG 50 highlights rise of Chief Sustainability Officers
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Supply chain. Sustainability in the supply chain is driving returns and represents a lot of potential.  McLaughlin said that supply chain efficiency has a direct impact on emissions and returns, but also needs to be nimble as supplies and commodities shift based on weather events.

Walmart has 5,200 suppliers involved with its Project Gigaton, which focuses on emissions avoidance as well as sequestering and removing carbon. McLaughlin said:

"The projects are in energy, transportation, product design, packaging, waste reduction and nature. So regenerative agriculture practices, animal, ag and crops and then also avoidance of deforestation and conversion. And so, what we do is help our suppliers that target in a way that is science-based make progress on initiatives by sharing best practices, supporting with playbooks, summits, knowledge exchange, advice. We also then provide a series of resources."

Emissions. Walmart's McLaughlin said the retailing giant can tackle Scope 1 and Scope 2 emissions without offsets but will have to experiment. As a refresher:

• Scope 1 represents direct emissions from company facilities and vehicles.
• Scope 2 is indirect upstream emissions from purchased electricity, steam, heating and cooling.
• Scope 3 includes indirect upstream and downstream emissions from purchased goods and services, capital goods, fuel & energy activities, transportation, waste, business travel, commuting, leased assets; processing & use of sold products, investments.

Electrification and refrigeration can help bring Walmart to net zero by 2040. Electricity is "the lion's share of our emissions in Scope 1 and 2," she said. "It's refrigeration that's technically possible, but incredibly complex at our scale to convert to low global warming potential refrigerants in our entire fleet globally. That's not going to be easy, and we're still experimenting with different technologies. But we think it's doable. And by 2040, we need to figure out how to get there."

Last mile delivery is another key area for Walmart and the company is looking toward EVs. Longer deliveries are going to be more challenging. "The tough one there is our heavy tractor where we don't have the technology today given our loads and the distances that we run those trucks. Today's battery technology, EV that's not going to do it. So there needs to be innovation there. Or is it fuel cells or what?" she said.

There can also be business value with cutting ecosystem emissions. Walmart is expanding its EV charging infrastructure so "it will be great and attractive for customers. They come and plug in." Another initiative is using Walmart locations to provide solar energy to the community and grid.

Scope 3 is going to be a challenge largely due to data. McLaughlin said:

"Our challenge now as we kind of go into a world where there's more expectation of reporting total footprint is how do we connect these very real projects in very real parts of the supply chain with very real evidence of progress and so on to a foot printing like a comprehensive foot printing analysis. It's a different set of numbers and assumptions. For a retailer like us, we have 400 million items, different SKUs, like different items that we sell between in-person, online, at least that many. There isn't a data set about the comprehensive Scope 3 of every single one of those items, especially when you consider how customers use those items."

She added that Walmart's plan is to focus on emissions where they are heavily concentrated in the supply chain and focus on innovation there.

Human capital. McLaughlin said that human capital is a big part of ESG. The big focus for Walmart is training and providing marketable skills. For instance, sustainable refrigeration will require a new skill set for people managing equipment. There are paths to move hourly workers to key areas such as truck driving and management. "We need truck drivers. It's a $100,000 a year job. We can teach people the skills to do it. And so, we've got people flowing into those positions. That's just one, same thing in pharmacy, same thing in coding, you pick it," she said. "75% of our managerial roles are filled by people who started as hourly. 80% of our openings we fill with internal Walmart people because that's what we're trying to do is kind of create these development paths."

Will amenities get you back to the office?

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Despite a lot of talk and mandates about moving back to the office, enterprises are more likely to adopt hybrid work plans over the next three years, according to a Bank of America survey. That data point is just one of many highlighting how the future of the office is still being debated. 

The survey, Bank of America's 2023 Workplace Benefits Report, tackles a lot of workplace topics, but one big takeaway is that employers are likely to shift to more remote work. In fact, 55% of enterprises say they have an in-person work model, but over the next three years that percentage falls to 36%. Hybrid approaches are used by 39% of enterprises today but will surge to 47%. Seventeen percent of employers will go fully remote in the next three years.

There are multiple data points to consider for enterprises considering work models going forward.

• According to the Bank of America survey, 51% of rural employees, 41% of suburban workers and 49% of urban employees say inflation is making it difficult to make ends meet. Cutting commute costs will matter to these employees.
• Interest rates are higher, and companies will look to shed commercial lease obligations.
• The National Association of Realtors said first half office vacancies hit a new record high of 13.1% nationwide in the first half of 2023. 

The NAR said in a report:

"With hybrid work arrangements allowing for a mix of in-person and remote work, a lot of office space is left empty. Meanwhile, in their effort to reduce their occupancy cost, tenants have decreased the average square footage per person leading to lower demand for space. The office sector is transforming to adapt to changing working arrangements and needs."

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• Hybrid Work in 2023

Chris Roeder, Executive Managing Director of Broker Lead, a corporate real estate advisor, said on DisrupTV that San Francisco will come back as startups return to the office. That productivity boost will lead to more office occupancy. Larger enterprises are slower to move back downtown, but AI startups are creating some optimism.

The big issue is whether companies can force employees back to the office. "I think there are some mandates but no enforcement," he said.

To get back to the office and revitalize downtowns, developers need to revamp the office experience, said Roeder.

"Most landlords downtown are talking about 'Ok, how do I create cold plunge saunas?'" said Roeder, who added that every amenity is being considered to make the office better than home. "How do you replace the kind of activity people get at home and then get more activation. All things are considered, and landlords are doing it. It's actually pretty fun to put these recommendations together."

Bottom line: The return to office theme has yet to be decided.

More research on the future of work:

• The Leading Trends in Visual Collaboration for 2024

Accenture's Q4: What we learned

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

Read more

Accenture said generative AI deals are accelerating and enterprises are focusing on transformation even as they remain cautious about the economy.

Those takeaways were revealed on Accenture's fourth quarter earnings conference call. The company reported fourth quarter earnings of $2.15 per share on revenue of $16 billion, up 4% from a year ago. For fiscal 2023, Accenture reported earnings of $10.77 per share on revenue of $64.1 billion, up 4%.

Accenture projected first quarter revenue to be between $15.85 billion to $16.45 billion. For fiscal 2024, Accenture projected revenue growth of 2% to 5%.

Generative AI is great for services and consulting. In the third quarter, Accenture said it sold 100 generative AI projects with roughly $100 million in sales over the prior four months. In the fourth quarter, Accenture sold another $200 million in generative AI services for a fiscal year total of $300 million.

Overall, Accenture is working on about 300 generative AI projects. "Clients are doing a variety of different types of work from strategy and use case implementations to tech enablement, to scaling, to model customization, tuning and training, to talent and responsible AI," said Accenture CEO Julie Sweet.

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The pace of generative AI adoption is unclear. "While all companies want to explore and understand gen AI, what we find is that clients who are more mature digitally want to go faster, while others would like to test the waters with proofs of concepts and synthetic data, and others prefer to wait until they have built more of their modern digital core," said Sweet. "The extent and pace of this generative AI progression will become more clear over the coming quarters as the technology and the market continue to mature and progress."

Sweet added that Accenture is seeing real generative AI projects in the $1 million range.

Caution remains. Sweet said the company has seen "greater caution globally, with lower discretionary spend, slower decision-making, and in particular for us, a significant impact from the challenges the comm, media, and tech industries have faced."

Accenture's fiscal year outlook assumes that there's no improvement in discretionary spending or the macroeconomic picture.

ERP modernization far from complete. "We are continuing to see significant demand in areas like cloud migration and modernization, modern ERP and data and AI, and the emergence of gen AI in particular, all of which represent areas of great opportunity. And it's still early," said Sweet.

Only a third of Accenture's clients have modernized their ERP platforms and less than 10% of customers have mature data and AI capabilities, said Sweet.

Related: Future of Finance and Supply Chain Processes | JPMorgan Chase: Digital Transformation, AI and Data Strategy Sets Up Generative AI | 2023 H1 CxO Business Confidence Survey

What CEOs are saying. Sweet said:

"I was with about 20 different CEOs and they had three messages, right? Tech is super important, that's number one. Number two, they already have major programs underway, and they know they need to do a lot more. But number three is they're feeling cautious about the macro, and we've already seen that in the small deals. But they're asking us to help them save money and be more focused right now, even on the bigger programs.

And so, what I would say is and that's reflected in our guidance is that, the macro is having an effect on the pace of spending right now."

Workday lays out growth plans through fiscal 2027: Here are the takeaways

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

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Workday said it is aiming to deliver annual subscription revenue growth of 17% to 19% over the next three years with a plan that revolves around expanding its enterprise wallet share, winning midmarket companies and international expansion.

That outlook comes after a bevy of announcements around generative AI and platform updates at Workday Rising in San Francisco. The outlook for fiscal 2027 disappointed Wall Street analysts.

Nevertheless, Workday's Financial Analyst Day offered a bevy of takeaways. Here's a look at the key points.

Workday is betting that the data across its platform will differentiate its approach to generative AI and large language models (LLMs). Workday's data set is based on more than 65 million users under contract, 50 million daily machine learning inference requests, more than 600 billion annual transactions and, more importantly, 3,000 customers who opted in to sharing data for machine learning models. Those customers sharing data enable Workday to launch new SKUs in the future.

Generative AI is product focused and geared internally toward efficiency. Workday said it is focused on delivering AI and generative AI within its products, expanding the ecosystem and using AI internally to lower costs.

Workday has been landing large enterprises, but the medium sized enterprise is just as important. Workday said it will expand internationally by targeting midmarket companies. Today, 25% of Workday's revenue is internationally. The plan is to leverage partners and run Workday's enterprise playbook abroad.

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Industry-focused opportunities are underappreciated. Workday executives made the case that the company can expand with vertical efforts. Financial services and retail and hospitality have more than $1 billion in ARR, but Workday is also looking to expand in technology and media, healthcare, professional services, education and public sector.

Workday is looking to attach new applications on its platform as it upsells the customer base. The results are mixed. For instance, Workday Recruiting has a 75% attach rate, Talent Optimization is at 45% but applications like People Analytics are at 16%. Workday estimates that it has a more than $2 billion incremental ARR opportunity within its top 100 accounts.

Here's a look at the attach rates to Workday HCM and/or Workday Financial Management.

Workday Financial Management is key to Workday's growth plans. Workday said that more than 35% of new customers landed with Workday Financial Management either as a standalone subscription or part of a joint rollout with HCM. Workday said it will roll out more financial applications for industries and convert Workday Adaptive Planning to core Workday Financial Management. The company has also allocated more than half its sales capacity in fiscal 2024 to Workday Financial Management.

According to Workday, 75% to 80% of overall financials market is on-premise and can be moved to a cloud platform like Workday Financial Management.

Workday's fiscal 2027 financial goals are balancing growth and margins. Aside from its subscription revenue growth guidance, Workday CFO Zane Rowe noted that the company is looking to deliver non-GAAP operating margins of more than 25%. How? Focus R&D investments on AI and machine learning and using automation across the business. Operating cash flow targets of more than 30% will come from strong customer retention, industry expansion and Workday's platform approach.